Equilibrium Effects of Size-based Policies on Multiproduct Firms
ABSTRACT. Governments support micro, small and medium enterprises (MSME) with a wide array of size-based industrial policies that in some cases, may also depend on which products these firms manufacture. In this paper, I build a general equilibrium model to examine how heterogeneous multiproduct firms change (a) which products they manufacture (product mix) and (b) how much they manufacture (firm size), in response to these industrial policies. I show how products not directly targeted by the policy can be indirectly affected through the product mix, which cautions against using standard approaches (such as difference-in-differences) to evaluate these policies. Using the dismantling of a size-based, product-specific industrial policy in India that reserved hundreds of products to be manufactured by small firms, I test the predictions of the theory and document spillovers on never-reserved products. I then estimate the model and find that the policy reform increases welfare (as measured by consumption equivalence) by 0.4 percent. I decompose these welfare gains and find that half the gains come from changes in the product mix while the other half come from changes in firm size, suggesting that the product mix is an important channel of firm adjustment. Lastly, the general equilibrium effects of the policy are substantial and account for 8.6 percent of the welfare gains.
How Important are Matching Frictions in the Labor Market? Experimental and Non-experimental Evidence from a Large Indian Firm (with Abhijit Banerjee)
Coverage: PEDL CEPR interview
ABSTRACT. This paper provides evidence of substantial matching frictions in the labor market in India. In particular, we show that placement officers (labor market intermediaries) in vocational training institutes have very little information about job preferences of candidates they are trying to place. This has consequences for the allocation of interviews, which in turn substantially affects the labor market outcomes of candidates. To establish this, we first elicit preferences of candidates over different types of jobs and show that placement officers have poor knowledge of these preferences. We then demonstrate that better knowledge of these preferences alters the behavior of placement officers by providing them with information on preferences for a randomly selected subsample of candidates. We find that placement officers are more likely to match candidates in the treatment group to interviews they like more. Using a stable matching algorithm, we show that these officers come close to efficiently matching candidates to job interviews given their information set of candidate job preferences. We then estimate a model of interview allocations using job preferences to show that there are indeed net welfare gains because of better matching, not just redistribution within the group of potential employees. Lastly, we examine the implications of our intervention on the labor market outcomes of candidates and find that it leads to a substantial improvement in subsequent employment outcomes.
Marriage Markets and the Rise of Dowry in India (with Jeff Weaver) Online Appendix [NEW DRAFT]
Coverage: Live Mint, Ideas for India
ABSTRACT. Dowry payments are an important part of household finances in India, typically exceeding a year of earnings. This paper uses a large historical data set to document new facts on the emergence of dowry. We show that the proportion of Indian marriages with dowry nearly tripled between 1930 and 1975, with a similar expansion in the size of dowry payments. We test numerous prominent theoretical models of dowry and find that most cannot explain the observed changes. The rise of dowry in India is best explained by shifts in the earnings distribution of grooms in a search model of marriage markets.
Work in progress
The Effect of Storage Capacity on Price Dynamics and Production: Evidence from India
(with Sabyasachi Das and Shivakumar Venkatraman)
ABSTRACT. What is the effect of expanding local storage capacity on seasonal variation in market prices of commodities and how does it affect farmers’ production choice? We answer these questions by examining perishable commodities (especially, potato) in the context of India (specially the state of Uttar Pradesh (UP)). We exploit a large cold storage subsidy program of the Indian government that enabled construction of 14.5 million metric tonne of cold storage capacity in a span of about two decades. We build a parsimonious model with risk-neutral farmers and costly storage to show that storage capacity expansion would (i) (non-linearly) reduce seasonal price dispersion, and (ii) (linearly) increase production even in absence of any (aggregate or idiosyncratic) uncertainty or farmer heterogeneity. The empirical results are consistent with the model and are economically significant. The estimates suggest that in an average district in UP, cold storage construction during 2002-2015 contributed to about one-third in the overall reduction in seasonal price dispersion and one-half in the overall increase in the production of potato. We will address the endogeneity concerns in future drafts of the paper by using the discontinuities in the rules for allocating subsidies.
Understanding Urban Housing in India (with Mushfiq Mobarak) — Fieldwork completed
Applicant Selection and Post-training Assistance in Skill Development Programs (with Jeremy Magruder) — Grant secured
“Who gets LPG subsidies?” (with Abhijit Banerjee), Economic Survey of India, 2013.